U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997
Commission file number 33-65292C
THE BANC STOCK GROUP , INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0190407
(State of incorporation) (IRS Employer Identification No.)
1105 Schrock Road, Suite 437, COLUMBUS, OHIO 43229
(Address of principal executive offices)
(614) 848-5100
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of September 30, 1997:
CLASS NUMBER OF SHARES
Class A shares, No Par Value 7,931,717
Class C shares, No Par Value 480,000
TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE)
Yes X No
THE BANC STOCK GROUP, INC. AND SUBSIDIARIES
INDEX
PAGE
Part I Financial Information:
Item 1. Consolidated Financial Statements 3-7
Notes to Consolidated Financial Statements 8-17
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 18-22
Part II Other Information:
Item 1 through Item 6 23-24
Signatures 25
THE BANC STOCK GROUP, INC. AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
The accompanying consolidated financial statements of The Banc Stock Group,
Inc., formerly, Heartland Group of Companies, Inc., are unaudited but, in the
opinion of management, reflect all adjustments (which include only normal
recurring accruals) necessary to present fairly such information for the
periods and at the dates indicated and to make the consolidated financial
statements not misleading. The results of operations for the six months
ended August 31, 1997 may not be indicative of the results of operations for
the year ending February 28, 1998. Since the accompanying consolidated
financial statements have been prepared in accordance with Item 310 of
Regulation S-B, they do not contain all information and footnotes normally
contained in annual consolidated financial statements; accordingly, they should
be read in conjunction with the consolidated financial statements and notes
thereto appearing in the Company's Annual Report.
THE BANC STOCK GROUP, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
AS OF AUGUST 31, 1997
(UNAUDITED)
ASSETS
Cash $ 118,639
Securities owned:
Marketable equity securities, at market value 10,049,818
Not readily marketable equity securities at estimated f 797,974
Mortgage participation notes 100,000
Accounts receivable:
Affiliates 147,977
Pending securities settlements 108,710
Notes and interest receivable 55,999
Equity investment in Banc Stock Exchange of America 526,010
Property and equipment, net of accumulated depreciation
of $196,281 165,194
Goodwill, net of accumulated amortization of $211,385 418,582
Deposits and other 215,365
Total assets $ 12,704,268
LIABILITIES
Margin accounts payable to broker-dealers $ 579,717
Unearned commisions 83,300
Accounts payable to broker-dealers and other 52,842
Deferred taxes 300,000
Accrued expenses 674,299
Total liabilities 1,690,158
SHAREHOLDERS' EQUITY
Preference stock, 50,000,000 shares authorized, -
none issued or outstanding
Common stock:
Class A, no par value, 149,400,000 shares
authorized, 8,234,762 shares issued
and 7,931,717 shares outstanding 9,102,556
Class C, no par value, 480,000 shares
authorized, issued and outstanding -
Treasury stock, at cost
(303,045 Class A shares) (385,403)
Retained earnings 2,296,957
Total shareholders' equity 11,014,110
Total liabilities and shareholders' equity $ 12,704,268
The accompanying notes are an integral part of these consolidated financial
statements.
THE BANC STOCK GROUP, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS of INCOME
FOR THE THREE MONTHS and SIX MONTHS ENDED AUGUST 31, 1997 and 1996
(UNAUDITED)
6 Months Ended 3 Months Ended
AUGUST 1997 AUGUST 1996 AUGUST 1997 AUGUST 1996
REVENUES:
Principal transactions: $ 2,291,974 $ 762,938 $ 1,456,648 $ 362,155
Commission revenue 888,396 663,683 618,218 425,643
Agency Fees 0 14,270 0 14,270
Dividends 85,445 66,278 48,281 44,705
Interest 16,725 18,480 6,476 9,049
Total revenues 3,282,540 1,525,649 2,129,623 855,822
EXPENSES:
Brokers' commission 507,803 357,264 314,572 236,770
Salaries, benefits and
payroll taxes 491,081 185,145 367,512 89,475
Interest 40,180 20,056 19,375 13,749
General and administrative 557,867 437,145 292,792 243,975
Total expenses 1,596,931 999,610 994,251 583,969
INCOME BEFORE TAXES 1,685,609 526,039 1,135,372 271,853
INCOME TAX PROVISION 300,000 - 300,000 -
INCOME BEFORE EQUITY IN NET
EARNINGS OF AFFILIATED CO. 36,850 3,970 25,770 6,900
NET INCOME $ 1,422,459 $ 530,009 $ 861,142 $ 278,753
WEIGHTED AVERAGED SHARES,
COMMON AND COMMON
STOCK EQUIVALENTS 8,516,533 8,411,677 8,622,955 8,411,677
PRIMARY AND FULLY DILUTED
EARNINGS
PER COMMON SHARE $ 0.17 $ 0.06 $ 0.10 $ 0.03
The accompanying notes are an integral part of these consolidated financial
statements.
THE BANC STOCK GROUP,INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CHANGES in SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED AUGUST 31, 1997
(UNAUDITED)
Treasury Retained
Class A Class C Stock Earnings Total
Balance 2/28/97 $9,102,556 - ($385,403) $874,498 $9,591,651
Net income - - - 1,422,459 1,422,459
Balance 8/31/97 $9,102,556 - ($385,403) $2,296,957 $11,014,110
The accompanying notes are an integral part of these consolidated financial
statements.
THE BANC STOCK GROUP, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 31, 1997 and 1996
(UNAUDITED)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,422,459 $ 530,009
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 36,838 32,104
Deferred taxes 300,000 -
Equity in earnings of Banc Stock Exchange of A (36,850) (3,970)
(Increase) decrease in certain assets-
Accounts receivable (64,417) (52,812)
Securities owned, net (1,372,267) (1,335,172)
Other assets (129,248) (2,955)
Increase (decrease) in certain liabilities-
Accounts payable to broker-dealers and othe 31,875 (26,955)
Unearned commissions 83,300 -
Accrued expenses and other 105,329 27,932
Net cash provided by (used in) operating 377,019 (831,819)
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections of notes receivable 15,153 36,300
Issuance of notes receivable (48,306) (7,070)
Purchase of property and equipment (96,578) (28,989)
Net cash (used in) provided by investing (129,732) 241
CASH FLOWS FROM FINANCING ACTIVITIES:
Margin accounts payable to broker-dealers (145,740) 498,843
Advances from affiliates 131,530 333,153
Advances to affiliates (274,864) (311,277)
Net cash (used in) provided by financing (289,074) 520,719
NET DECREASE IN CASH (41,787) (310,859)
CASH, BEGINNING OF PERIOD 160,426 405,338
CASH, END OF PERIOD $ 118,639 $ 94,479
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
1997 1996
Cash paid during the period for:
Interest $ 40,180 $ 20,056
The accompanying notes are an integral part of these consolidated financial
statements.
THE BANC STOCK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
(1) ORGANIZATION AND NATURE OF BUSINESS
The Banc Stock Group, Inc. (the Company), formerly, Heartland Group of
Companies, Inc., is a Florida corporation incorporated in April, 1990. At the
Annual Meeting of Shareholders held on June 19, 1997, the Shareholders amended
the Articles of Incorporation to change the name of the corporation to The Banc
Stock Group, Inc. The Company was organized for the purpose of investing in
financial services companies (such as stock brokerage companies) as well as
trading and investing in minority interests of independent bank stocks. The
Company has three wholly-owned subsidiary operating companies.
Banc Stock Financial Services, Inc. (BSFS), an Ohio corporation, is an NASD
registered broker-dealer specializing in the trading of bank stocks nationwide.
BSFS is registered with the Securities and Exchange Commission and the
securities commissions of seventeen states, including Ohio. BSFS trades
securities on a fully-disclosed basis and clears customer transactions
through an unaffiliated broker-dealer which also maintains the customer
accounts. BSFS derives a significant portion of its revenues from providing
private portfolio management and brokerage services.
Heartland Advisory Group, Inc. (HAG), is a registered investment advisor
offering advisory accounts to qualified investors. HAG is the Investment
Advisor to The Banc Stock Group Fund, a diversified, open-end mutual fund.
Buckeye Bancstocks, Inc., is an Ohio corporation established in 1977, to act
as an intrastate broker-dealer trading primarily in Ohio bank stocks.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the reported
amounts of revenues and expenses for the period. Actual results could differ
from those estimates.
The following is a summary of the Company's significant accounting policies:
Principles of Consolidation
The accompanying consolidated financial statements include the operations of
the Company, BSFS, HAG and Buckeye Bancstocks. All intercompany transactions
and balances have been eliminated in consolidation.
Cash
The Company has defined cash as demand deposits and money market accounts.
Valuation of Securities Owned
Bank securities and related options traded on national securities markets and
securities not traded on national securities markets, but with readily
ascertainable market values, are valued at market value. Other bank securities
for which market quotations are not readily available, due to infrequency of
transactions, are valued at fair value as determined in good faith by the
management of the Company. Realized and unrealized gains and losses are
included in principal transactions.
Property and Equipment
Property and equipment is carried at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over estimated lives
of five to seven years.
Goodwill
The excess purchase price over the fair market value of the net assets acquired
from Buckeye Bancstocks and BSFS is being amortized on a straight line basis
over 20 years.
Revenues
Securities transactions and commissions are accounted for on the trade date
basis. Dividend income is recorded on the ex-dividend date and interest
income is accrued as earned. Realized gains and losses from sales of
securities are determined utilizing the first-in, first-out method (FIFO).
Earnings Per Share
Primary and fully diluted earnings per common share were computed by dividing
net income by the weighted average number of shares of common stock and common
stock equivalents outstanding during the periods.
Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," which supersedes
existing standards for determining earnings per share. The statement will be
effective for the Company for the year ending February 28, 1998. Primary
earnings per share will be replaced by "basic earnings per share," which will
be determined solely by the weighted average number of shares outstanding for
the period. Fully diluted earnings per share will be replaced by "diluted
earnings per share," which will reflect the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. The statement will also require
a reconciliation of the numerator and denominator of basic earnings per share
with the numerator and denominator of diluted earnings per share. Management
does not believe the new statement will result in a significant difference in
amounts per share reported in these financial statements.
Fair Value of Financial Instruments
Substantially all of the Company's financial instruments are carried at fair
value or amounts approximating fair value. Assets, including cash, accounts
receivable, mortgage participation notes, notes and interest receivable and
securities owned are carried at amounts which approximate fair value.
Similarly, liabilities, including margin accounts payable to broker-dealers,
accounts payable and accrued expenses are carried at amounts approximating
fair value.
Equity Investment in Banc Stock Exchange of America
The Banc Stock Exchange of America (BSA) is establishing an electronic bank
stock information service. BSA is under common management with the Company.
The Company currently holds 16% of the outstanding common stock of BSA. The
Company's investment in BSA is accounted for on the equity method. The
difference between the carrying amount of the investment accounted for under
the equity method and the underlying equity in net assets results from the
Company's policy of expensing pre-operating costs as incurred.
(3) CAPITAL STOCK
Common Stock
Class A Common shares have been registered with the Securities and Exchange
Commission since March 24, 1994. Commencing December 1, 1991, shares of
Class C common stock automatically convert to Class A common stock at the
rate of 120,000 shares per year. The Class C common shares are subordinate
to Class A common stock in that Class A common stock has a liquidation
preference over the Class C common stock equal to $1.50 per share. In all
other respects, Class A and Class C common stock have equal rights.
Treasury Stock
As of August 31, 1997, Buckeye Bancstocks held 206,240 Class A shares of the
Company. These shares are treated as treasury stock for financial reporting
purposes.
Authorization of Preference Stock
The Company's Articles of Incorporation authorize the issuance of 50,000,000
shares of "blank check" preference stock with such designations, rights and
preferences as may be determined from time to time by the Company's Board of
Directors. The Board of Directors is empowered, without shareholder approval,
to issue preference stock with dividend, liquidation, conversion, voting, or
other rights which could adversely affect the voting or other rights of the
holders of the common stock.
(4) SECURITIES OWNED
Marketable equity securities at August 31, 1997 consist of bank stocks at
market value, as follows:
Traded on national securities markets $ 6,658,828
Not traded on national securities
markets, but with readily ascertainable
market value 3,390,990
Total marketable equity securities $10,049,818
The Company, at any given time, may have a significant amount of its securities
owned and related income generated from a few specific bank stocks. As of
August 31, 1997, the Company had no single investment representing more than
10% of its marketable equity securities.
Securities not readily marketable include securities for which there is no
market on a securities exchange and no independent publicly quoted market.
These securities at August 31, 1997 were $797,974 at fair value with a cost
of $657,198. As of August 31, 1997, the Company had investments in one bank
stock amounting to 63% of its not readily marketable securities.
(5) MARGIN ACCOUNTS PAYABLE TO BROKER-DEALERS
The Company maintains margin account balances due to unaffiliated broker-
dealers bearing interest at variable rates which averaged 7.5% at August 31,
1997. These margin accounts are secured by the respective securities held by
broker-dealers. The market value of the securities held by broker-dealers
with margin account balances was approximately $5,451,800 at August 31, 1997.
(6) RELATED PARTY TRANSACTIONS
Securities Transactions
The Company purchases from and sells securities owned to BSA at the prevailing
market price at the time of the transaction. However, during the six months
ended August 31, 1997 and 1996 no purchases were made from, nor sales made to,
BSA.
Operating Expenses
The Company and BSA are under common management. Certain expenses are paid by
the Company and allocated to BSA based upon predetermined percentages as
approved by the officers of the Companies. Operating expenses in the
allocation are primarily salaries and benefits. Total expenses allocated to
BSA were $71,578 and $40,006 for the six months ended August 31, 1997 and
1996, respectively.
(7) INCOME TAXES
The Company files a consolidated Federal income tax return. It is the policy
of the Parent to allocate the consolidated tax provision to subsidiaries as
if each subsidiary's tax liability or benefit were determined on a separate
company basis. As part of the consolidated group, subsidiaries transfer to
the Parent their current Federal tax liability or assets.
The provision for income taxes for the six months ended August 31, 1997 is
composed of the following:
Current Federal income taxes $ -
Deferred Federal income taxes 590,000
Change in valuation allowance (290,000)
Provision for income taxes $300,000
Deferred tax assets and liabilities consist of the following at August 31, 1997:
Deferred tax benefit of NOL carryforward $ 950,000
Deferred tax liabilities on unrealized gains
on securities owned (1,250,000)
Net deferred tax benefit (300,000)
Valuation allowance -
Deferred taxes $ (300,000)
(8) OPERATING LEASES
The Company leases certain facilities, a vehicle and office equipment under
operating leases. Total lease expenses were approximately $87,000 in fiscal
year ended February 28, 1997. As of August 31, 1997 the future minimum lease
payments under existing leases are as follows:
Amount
1998 $ 96,600
1999 99,200
2000 88,200
2001 92,500
2002 94,300
2003 39,300
$ 510,100
(9) EMPLOYEE INCENTIVE PLANS
Incentive Compensation Plan
All full-time executive employees of the Company are eligible to participate
in the Heartland Incentive Compensation Plan. The Plan provides that a bonus
fund will be established in an amount equal to 20% of the pre-tax realized
profits of the Company in excess of a 15% pre-tax return on equity. The
amount of the bonus fund is calculated each fiscal quarter on a cumulative
basis. The allocation of the bonus fund is to be made by the President of the
Company. The Company incurred an expense of $93,000 under the Plan for the
year ended February 28, 1997 and has provided $195,000 for the six months
ended August 31, 1997.
Stock Option Plan
The Company has a Non-Qualified and Incentive Stock Option Plan which
authorizes the grant of options to purchase an aggregate of 1,000,000 shares
of the Company's Class A Common Stock. The Plan provides that the Board of
Directors, or a committee appointed by the Board, may grant options and
otherwise administer the Option Plan. The exercise price of each incentive
stock option or non-qualified stock option must be at least 100% of the fair
market value of the Class A Shares at the date of grant, and no such option
may be exercisable for more than 10 years after the date of grant. However,
the exercise price of each incentive stock option granted to any shareholder
possessing more than 10% of the combined voting power of all classes of
capital stock of the Company on the date of grant must not be less than 110%
of the fair market value on that date, and no such option may be exercisable
more than 5 years after the date of grant.
Effective September 28, 1995, the following options and warrants were granted
under this plan with a ten year term and exercise price of $2.875.
(a) 154,000 non-qualified stock options granted to employees with immediate
vesting.
(b) 55,000 non-qualified stock options granted to brokers with immediate
vesting.
(c) 145,000 non-qualified stock options granted to brokers, vesting over
five years.
(d) 121,000 qualified stock options granted to employees, vesting over five
years.
(e) 105,000 warrants granted to directors and an officer with immediate
vesting.
Effective February 29, 1996, 25,000 options were granted under this plan to
the President of the Company with a ten year term and exercise price of $2.875.
Effective March 7, 1997, the following options and warrants were granted under
this plan with a ten year term and exercise price of $2.125.
(a) 61,000 non-qualified stock options granted to employees with immediate
vesting.
(b) 47,500 non-qualified stock options granted to brokers with immediate
vesting.
(c) 32,500 non-qualified stock options granted to brokers, vesting over five
years.
(d) 61,000 qualified stock options granted to employees, vesting over five
years.
(e) 65,000 warrants granted to directors and an officer with immediate vesting.
Effective May 4, 1997, 7,500 options which vest immediately and 7,500 options
which vest over five years, were granted under this plan to an employee with
a ten year term and exercise price of $2.375.
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation
cost has been recognized for its fixed stock option plans and warrants. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value , as computed in accordance with Statement
of Financial Accounting Standards No. 123 (FAS 123), at the grant dates for
awards under those plans, the Company's net income and earning per share would
have been reduced to the pro forma amounts indicated below:
Six Months Ended
August 31, 1997 August 31, 1996
Net income As reported $ 1,422,459 $ 530,009
Pro forma $ 1,029,250 $ 437,437
Primary and fully diluted
earnings per share As reported $ 0.17 $ 0.06
Pro forma $ 0.12 $ 0.05
To make the computations of pro forma results under FAS 123, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions: no
dividend yield for all years; expected volatility of 31.5% and 61%; and
expected lives of ten years. The assumed risk-free interest rates for the
September 28, 1995 grants is 5.83%; 6.79% for the February 29, 1996 grant;
7.03% for the March 7, 1997 grants; and 6.82% for the May 4, 1997 grants.
The options and warrants granted under these plans are not registered and
accordingly, there is no quoted market price.
A summary of the status of the Company's stock option and warrants plans as of
August 31, 1997 and changes during the six months then ended is presented
below:
Options Warrants
Exercise Exercise
Shares Price Shares Price
Outstanding March 1, 1997 480,000 $2.875 105,000 $2.875
Granted 232,000 $2.141 65,000 $2.125
Outstanding August 31, 1997 712,000 $2.636 170,000 $2.588
Exercisable August 31, 1997 395,200 $2.660 170,000 $2.588
Weighted-average fair value
of options and warrants
granted during the six months,
computed in accordance
with FAS 123 $1.651
The following table summarizes information about fixed stock options and
warrants outstanding at August 31, 1997:
Options Warrants
Number outstanding 712,000 170,000
Weighted-average remaining
contractual life in years 8.55 8.63
Weighted-average exercise price $2.660 $2.588
Number exercisable 395,200 170,000
(10) REGULATORY REQUIREMENTS
BSFS is subject to the uniform net capital rule of the Securities and Exchange
Commission (Rule 15c3-1), which requires that the ratio of "aggregate
indebtedness" to "net capital" not exceed 15 to 1 (as those terms are defined
by the Rule). BSFS had net capital of $883,243 as of August 31, 1997, which
was in excess of its required minimum net capital of $100,000. The ratio of
aggregate indebtedness to net capital was .52 to 1 as of August 31, 1997.
BSFS is also subject to regulations of the District of Columbia and twenty
states in which it is registered as a licensed broker-dealer.
Buckeye Bancstocks is required by the Ohio Division of Securities to maintain
an "allowable net worth" of $25,000. The Company has guaranteed this
allowable net worth.
HAG is a Registered Investment Advisor and is subject to regulation by the SEC
pursuant to the Investment Advisors Act of 1940.
(11) CONCENTRATIONS OF CREDIT RISK AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK
The Company's NASD broker-dealer subsidiary under the correspondent agreement
with its clearing broker, has agreed to indemnify the clearing broker from
damages or losses resulting from customer transactions. The Company is,
therefore, exposed to off-balance sheet risk of loss in the event that
customers are unable to fulfill contractual obligations. The Company manages
this risk by requiring customers to have sufficient cash in their account
before a buy order is executed and to have the subject securities in their
account before a sell order is executed. The Company has not incurred any
losses from customers unable to fulfill contractual obligations.
In the normal course of business, the Company periodically sells securities
not yet purchased (short sales) for its own account and writes options. The
establishment of short positions and option contracts expose the Company to
off-balance sheet market risks in the event prices change, as the Company may
be obligated to cover such positions at a loss. At August 31, 1997, the
Company had no short security positions, the Company had not written any
option contracts and did not own any options. The Company did not experience
any credit losses due to the failure of any counterparties to perform during
the six months ended August 31, 1997. Senior management of the Company is
responsible for reviewing trading positions, exposures, profits and losses,
trading strategies and hedging strategies on a daily basis.
The Company's significant industry concentrations, which arises within its
normal course of business activities, is with financial institutions for bank
securities transactions.
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Six Months Ended August 31, 1997, Compared to the Six Months Ended August 31,
1996
Revenues for the six months ended August 31, 1997 increased to $3,282,540
compared to $1,525,649 for the six months ended August 31, 1996, an increase
of 115%. This increase results primarily from increases in revenue from
principal transactions.
Revenues from principal transactions involving the trading portfolio were
$2,291,974 for the six months ended August 31, 1997 compared to $762,938 for
the six months ended August 31, 1996, an increase of 200%. This represents
an annual rate of return on the average portfolio of 45% for the six months
ended August 31, 1997 compared to 22% for the six months ended August 31,
1996 due to increases in market values.
Banc Stock Financial Services, Inc. (BSFS), the Company's NASD broker-dealer
subsidiary, generated commission revenue of $888,396 for the six months ended
August 31, 1997 compared to $663,683 for the six months ended August 31, 1996,
an increase of 34%. BSFS continues to make a concerted effort to increase its
level of business activity, especially portfolio management services.
Buckeye Bancstocks, the Company's intrastate broker-dealer subsidiary,
generated agency fees of $14,270 for the six months ended August 31, 1996.
These funds were earned by Buckeye in its capacity as agent for investors
desiring to acquire BSA stock or shareholders desiring to sell their BSA
shares. As an agent, Buckeye matched corresponding buyers or sellers. There
were no comparable fees for the six months ended August 31, 1997. Buckeye
does not expect to generate significant agency fees in the foreseeable future.
Operating expenses for the six months ended August 31, 1997 increased to
$1,596,931 compared to $999,610 for the six months ended August 31, 1996, an
increase of 60%. Brokers' commission expenses increased to $507,803 for the
six months ended August 31, 1997 compared to $357,264 for the six months ended
August 31, 1996, an increase of 42%. This increase reflects management's
decision to increase commissions paid to brokers to provide incentives to
increase the level of business activity. Salaries, benefits, and payroll
taxes increased to $491,081 for the six months ended August 31, 1997 compared
to $185,145 for the six months ended August 31, 1996, an increase of 165%.
This increase reflects accruals for the Incentive Compensation Plan for
employees and management's decision to add three additional employees to
establish additional revenue sources in the future. Interest expense increased
to $40,180 for the six months ended August 31, 1997 compared to $20,056 for the
six months ended August 31, 1996, an increase of 100%. This increase results
from additional margin positions with broker-dealers established to buy
additional securities to take advantage of favorable market conditions.
General and administrative expenses increased to $557,867 for the six months
ended August 31, 1997 compared to $437,145 for the six months ended August 31,
1996, an increase of 27%. This increase is primarily the result of marketing
costs incurred to launch The Banc Stock Group Fund, a mutual fund investing in
community bank stocks, which is sponsored by a subsidiary of the Company and
was launched August 1, 1997.
The Banc Stock Exchange of America, Inc. (BSA) has established an electronic
bank stock information service. BSA is separately owned but under common
management with the Company. The Company currently holds 16% of the
outstanding common stock of BSA. The Company's investment in BSA is accounted
for on the equity method. Equity in BSA's earnings was $36,850 for the six
months ended August 31, 1997 compared to $3,970 for the six months ended
August 31, 1996. BSA was a development stage enterprise through February 28,
1997, however, operations began March 1, 1997.
Quarter Ended August 31, 1997, Compared to the Quarter Ended August 31, 1996
Revenues for the quarter ended August 31, 1997 increased to $2,129,623
compared to $855,822 for the quarter ended August 31, 1996, an increase of
149%. This increase results primarily from increases in revenue from
principal transactions.
Revenues from principal transactions involving the trading portfolio were
$1,456,648 for the quarter ended August 31, 1997 compared to $362,155 for the
quarter ended August 31, 1996, an increase of 302%. This represents an annual
rate of return on the average portfolio of 55% for the quarter ended August 31,
1997 compared to 20% for the quarter ended August 31, 1996 due to increases
in market values.
Banc Stock Financial Services, Inc. (BSFS), the Company's NASD broker-dealer
subsidiary, generated commission revenue of $618,218 for the quarter ended
August 31, 1997 compared to $425,643 for the quarter ended August 31, 1996,
an increase of 45%. BSFS continues to make a concerted effort to increase its
level of business activity, especially portfolio management services.
Buckeye Bancstocks, the Company's intrastate broker-dealer subsidiary,
generated agency fees of $14,270 for the quarter ended August 31, 1996. These
funds were earned by Buckeye in its capacity as agent for investors desiring
to acquire BSA stock or shareholders desiring to sell their BSA shares. As an
agent, Buckeye matched corresponding buyers or sellers. There were no
comparable fees for the quarter ended August 31, 1997. Buckeye does not
expect to generate significant agency fees in the foreseeable future.
Operating expenses for the quarter ended August 31, 1997 increased to $994,251
compared to $583,969 for the quarter ended August 31, 1996, an increase of 70%.
Brokers' commission expenses increased to $314,572 for the quarter ended
August 31, 1997 compared to $236,770 for the quarter ended August 31, 1996, an
increase of 33%. This increase reflects the increase in the level of
business activity. Salaries, benefits, and payroll taxes increased to
$367,512 for the quarter ended August 31, 1997 compared to $89,475 for the
quarter ended August 31, 1996, an increase of 311%. This increase reflects
accruals for the Incentive Compensation Plan for employees and management's
decision to add three additional employees to establish additional revenue
sources in the future. Interest expense increased to $19,375 for the quarter
ended August 31, 1997 compared to $13,749 for the quarter ended August 31, 1996,
an increase of 41%. This increase results from additional margin positions
with broker-dealers established to buy additional securities to take advantage
of favorable market conditions. General and administrative expenses increased
to $292,792 for the quarter ended August 31, 1997 compared to $243,975 for the
quarter ended August 31, 1996, an increase of 20%. This increase is primarily
the result of marketing costs incurred to launch The Banc Stock Group Fund, a
mutual fund investing in community bank stocks, which is sponsored by a
subsidiary of the Company and was launched August 1, 1997.
The Banc Stock Exchange of America, Inc. (BSA) has established an electronic
bank stock information service. BSA is separately owned but under common
management with the Company. The Company currently holds 16% of the
outstanding common stock of BSA. The Company's investment in BSA is accounted
for on the equity method. Equity in BSA's earnings was $25,770 for the
quarter ended August 31, 1997 compared to $6,900 for the quarter ended August
31, 1996. BSA was a development stage enterprise through February 28, 1997,
however, operations began March 1, 1997.
Liquidity and Capital Resources
Approximately 7% of the value of the Company's trading portfolio is comprised
of small bank stocks which are thinly traded and there can be no assurance
that active markets will develop. The failure of such markets to develop
could negatively affect the Company's operations and financial condition.
Approximately 93% of the Company's trading portfolio is readily marketable,
providing a high degree of liquidity. Investments in bank securities traded
on national securities markets and securities not traded are valued at fair
value as determined in good faith by management of the Company. While
management employs objective criteria to ascertain these values, there is no
independent benchmark by which the values assigned by management can be judged.
As of August 31, 1997 the Company had working capital of approximately
$9,990,000 compared to approximately $7,730,000 as of August 31, 1996.
Working capital includes cash, securities owned and accounts and notes
receivable, net of all current liabilities. The Company has no long term debt.
The Company's NASD broker-dealer subsidiary under the correspondent agreement
with its clearing broker, has agreed to indemnify the clearing broker from
damages or losses resulting from customer transactions. The Company is,
therefore, exposed to off-balance sheet risk of loss in the event that
customers are unable to fulfill contractual obligations. The Company manages
this risk by requiring customers to have sufficient cash in their account
before a buy order is executed and to have the subject securities in their
account before a sell order is executed. The Company has not incurred any
losses from customers unable to fulfill contractual obligations.
In the normal course of business, the Company periodically sells securities
not yet purchased (short sales) for its own account and writes options. The
establishment of short positions and option contracts expose the Company to
off-balance sheet market risks in the event prices change, as the Company may
be obligated to cover such positions at a loss.
At August 31, 1997 the Company had no short security positions. Short
security positions do not expose the Company to credit risk since the
counterparty is not obligated to perform.
At August 31, 1997 the Company had not written any option contracts. Short
option positions do not expose the Company to credit risk since the
counterparty is not obligated to perform.
The Company did not own any options as of August 31, 1997. The Company did
not experience any credit losses due to the failure of any counterparties to
perform during the six months ended August 31, 1997. Senior management of the
Company is responsible for reviewing trading positions, exposures, profits and
losses, trading strategies and hedging strategies on a daily basis.
The Company's most significant industry concentration, which arises within its
normal course of business activities, is with financial institutions for bank
securities transactions.
Historically, the operations of the Company have been funded by returns on
investments, raising of capital, and limited bank financing. Management
believes that the Company's existing resources, including available cash and
cash provided by operating activities, will be sufficient to satisfy its
working capital requirements in the foreseeable future. However, no assurance
can be given that additional funds will not be required. To the extent that
returns on investments are less than or expenses are greater than anticipated,
the Company may be required to reduce its activities, liquidate inventory or
seek additional financing. This financing may not be available on acceptable
terms, if at all. No significant capital expenditures are expected in the
foreseeable future, however, the Company moved its offices during the second
fiscal quarter. The cost of this move was approximately $75,000 and the new
space will increase annual lease cost approximately 12%. The new space is
approximately 25% larger than the previous space. Working capital was used to
fund these expenditures.
Impact of Inflation and Other Factors
The Company's operations have not been significantly affected by inflation.
The Revenue Reconciliation Act of 1993 includes Mark-to-Market Rules which
essentially require dealers in securities to include unrealized gains on the
trading portfolio, in taxable income for income tax purposes. The Revenue
Reconciliation Act of 1993 was effective for the Company's tax year beginning
March 1, 1993. Securities held for investment rather than inventory are not
subject to the Mark-to-Market Rules. In light of the Company's net operating
loss carried forward, the Mark-to-Market Rules currently are not expected to
have a significant impact on operations. However, after the net operating
loss carried forward, currently available to the Company, is fully utilized,
these Rules could have a materially adverse impact on the Company's cash flow.
THE BANC STOCK GROUP, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of
Security Holders -
The Annual Meeting of Shareholders was held June 19, 1997. The Shareholders
voted on the following issues:
a. The Shareholders amended the Articles of Incorporation to change the name
of the corporation to The Banc Stock Group, Inc. This issue was approved with
7,575,580 votes for, 52,671 votes against and 783,473 votes withheld.
b. The Shareholders amended the By-Laws to provide that the Board of Directors
shall be divided into three classes with staggered three year terms so that one
class is subject to election at each annual meeting of the shareholders. This
issue was approved with 5,620,007 votes for, 31,935 votes against and 16,350
votes withheld.
c. Election of the Board of Directors. The following individuals were elected
to serve on the board:
Term
Name of Director Expires Votes for Votes withheld
Larry A. Beres 2000 7,833,676 18,208
Robert K. Butner 1999 7,830,176 21,208
Michael E. Guirlinger 2000 7,832,676 19,208
James G. Mathias 2000 7,833,676 18,208
Sandra L. Quinn 1999 7,832,676 19,208
J. David Smith 1998 7,833,676 18,208
Harvey Thatcher 1999 7,833,676 18,208
L. Jean Thiergartner 1998 7,802,363 49,521
d. The election of Price Waterhouse LLP to serve as independent accountants.
This issue was approved with 7,786,662 votes for, zero votes against and
42,242 votes withheld.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
a) Furnish the exhibits required by
Item 601 of Regulation S-B - None
b) Reports on Form 8-K - None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE BANC STOCK GROUP, INC.
(Registrant)
Date October 14, 1997 /S/ Michael E. Guirlinger
Michael E. Guirlinger
President, Treasurer and
Chief Executive Officer
Date October 14, 1997 /S/ Jeffrey C. Barton
Jeffrey C. Barton
Chief Financial Officer
Financial Data Schedule
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND> 0
<RESTATED>
<CIK> 0
<NAME> 0
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<PERIOD-START> JUN-01-1997
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> AUG-31-1997
<EXCHANGE-RATE> 1
<CASH> 118,639
<RECEIVABLES> 312,686
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 10,947,792
<PP&E> 165,194
<TOTAL-ASSETS> 12,704,268
<SHORT-TERM> 0
<PAYABLES> 632,559
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 8,717,153
<OTHER-SE> 2,296,957
[TOTAL-LIABILITIES-AND-EQUITY] 12,704,268
<TRADING-REVENUE> 2,291,974
<INTEREST-DIVIDENDS> 102,170
<COMMISSIONS> 380,210
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 508,186
<INTEREST-EXPENSE> 40,180
<COMPENSATION> 491,081
<INCOME-PRETAX> 1,685,609
<INCOME-PRE-EXTRAORDINARY> 1,685,609
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,422,459
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>